What is ULIP (Unit Linked Insurance Plan)?
A ULIP (Unit Linked Insurance Plan) is an investment cum insurance policy. It functions like a mutual fund and offers a life cover also. You can choose different types of funds - equity, debt and hybrid - depending on your risk profile and track the NAV of the funds on a daily basis. You can switch between funds from time to time. The investments and maturity amounts are tax exempted.
How do ULIPs work?
ULIPs work more like any other investment instrument.
- You decide the funds you want to invest
- Your investments go into purchase of funds of your choice
- Part of your investment is used to provide life cover
- You can invest in more than one funds
- You can switch between funds
- The performance of your funds determines your investment returns
How to Choose the Best ULIP Plans in India?
- Check the past fund performance
- Go for plans with low charges
- Stay invested for the long term
- Take advantage of switching and redirection features
Best ULIP Plans in India 2023
Benefits of ULIP (Unit Linked Insurance Plan)
Compared to traditional life insurance plans, ULIPs offer the following benefits:
Transparent
All charges which are deducted and made known to you. There are no hidden charges in these plans.
Liquidity
You can make partial withdrawals or even complete withdrawals after the lock-in period of 5 years.
Life coverage
In addition to the investment component, ULIPs provide a life cover also.
Low surrender charges
There will be no deductions if you exit the plans after the lock-in period.
Large number of fund options
Most plans offer more than 6 investment funds with varying amounts of risk. You can choose a combination of any of them to make your portfolio attractive and secure based on your risk tolerance.
Tax Benefits
ULIPs offer tax benefits on the invested amount and the maturity amount.
What are the different charges in ULIPs?
What are different types of funds that ULIPs would invest in?
Each Plan will offer funds with clear investment criteria. You can choose based on your risk appetite. A sample list of funds are shown below:
Fund - Equity Plus Asset Class | |
|---|---|
| Money Market Instruments, Cash & Deposit | 0-20% |
| Govt. Securities, Fixed Income & Bonds | 0-20% |
| Equity | 80-100% |
| Risk & Return Rating | Very High |
Fund - Blue Chip Asset Class | |
|---|---|
| Money Market Instruments, Cash & Deposit | 0-40% |
| Govt. Securities, Fixed Income & Bonds | 0-40% |
| Equity | 60-100% |
| Risk & Return Rating | High |
Fund - Balanced Asset Class | |
|---|---|
| Money Market Instruments, Cash & Deposit | 0-20% |
| Govt. Securities, Fixed Income & Bonds | 0-60% |
| Equity | 40-80% |
| Risk & Return Rating | Moderate to High |
Fund - Income Asset Class | |
|---|---|
| Money Market Instruments, Cash & Deposit | 0-20% |
| Govt. Securities, Fixed Income & Bonds | 80-100% |
| Equity | Nil |
| Risk & Return Rating | Moderate |
Fund - Conservative Asset Class | |
|---|---|
| Money Market Instruments, Cash & Deposit | 0-60% |
| Govt. Securities, Fixed Income & Bonds | 40-100% |
| Equity | Nil |
| Risk & Return Rating | Low |
ULIPs vs Mutual Funds
| ULIPs | Mutual Funds |
| Life cover available | No Life cover |
| Lock-in period of 5 years | ELSS funds have a lock-in period of 3 years. Other mutual funds have no lock-in period |
| Tax Benefits on Premiums & Maturity amount | ELSS funds offer tax deductions on premiums. But all mutual fund returns are taxable. |
| Large choice of funds within the same plan | You have to buy different mutual funds |
| Free switches & rebalancing allowed | No free switches & rebalancing |
| Transparency - High | Transparency - High |
ULIPs vs Traditional Insurance Plans
| ULIPs | Traditional Insurance Plans |
| Life cover available | Life cover available |
| Higher Returns & Higher Risk | Lower Returns & Lower Risk |
| Transparency - High | Transparency - Low |
| Lower Charges | Higher overall charges |
| Can exit after lock-in period of 5 years | High charges in case of early exit from plan |
